By Dr. James M. Dahle, WCI Founder
Estate planning is a chore that most of us put off whenever possible. Not only do we usually find it uninteresting, expensive, and even worse, it can force us to face our own mortality. However, it is an important aspect of financial planning and, when done poorly (or not at all), can really cause a mess for heirs.
What Do You Need to Know About Estate Planning?
There are three purposes to estate planning:
- Ensure our minor children, our things, and our money goes where we wish them to go at the time of our death.
- Minimize the amount of our assets that have to pass through the expensive, time-consuming, and public process of probate.
- For a select few, estate planning is also done to minimize the amount of estate and inheritance taxes paid at the time of death.
#1 Planning for Minor Children
Daddy will you please plan your estate for me? Yes, and my business will even pay you for this photo to make it easier.
While it can be frowned upon to try to rule the lives of your heirs from the grave, one time when everyone agrees it would be wise to provide some direction is when you have minor children. The most important function of a will is to name the person (guardian) who will take care of your children in the event of your death. Your will should also name the person who will manage your assets (including life insurance benefits) on their behalf. While this can be the same person, naming a different person allows you to draw on the talents of different family members or friends and provides some checks and balances.
#2 Avoiding Probate
Another function of a will is to determine who gets your stuff and your money when you die.
If you die “intestate” (ie, without a will), the probate judge will follow the laws of your particular state to determine who inherits your estate. Basically, if you don’t have a will, the state will make one for you.
Typical intestate rules indicate that your spouse has first claim on your assets, then your descendants, followed by your parents, and then your siblings. However, each state has slightly different rules, and you should read them before deciding whether they are in line with your wishes. If they are not, then even if you have no minor children, you need a will.
If your family, desires, and financial situation are very simple, you may be just fine with an inexpensive will purchased through an online service. As your assets grow or your family situation becomes more complicated, a consultation with a qualified estate planning attorney becomes more and more valuable.
The process of probate involves a judge reading the will (or following intestate laws in the absence of a will) and determining who gets what. This process is public, which reveals to the world what you owned. It can also be expensive, costing as much as 15 percent of the value of the estate! Finally, it can be time-consuming. It might take a year or more for your heirs to receive what is coming to them.
Trusts
An important aspect of estate planning is minimizing how much of your assets must go through probate. This is primarily accomplished through beneficiary designations and secondarily through revocable trusts. Retirement accounts, life insurance policies, annuities, and many other types of financial accounts allow you to name beneficiaries. All of those assets pass outside of the probate process quickly, inexpensively, and without public knowledge. Payable-on-death accounts at a bank may also allow you to have additional FDIC coverage on your assets.
Revocable trusts are trusts that are used to pass assets outside of the probate process. Many wealthy people, particularly elderly ones, have their homes, vehicles, and even financial accounts owned by their revocable trust. Since it is revocable, they have full access to the assets at all times and can remove them from the trust if needed. But when they die, the assets are passed in accordance with the terms of the trust.
Taxes
A lot of doctors worry about the “death tax” (ie, estate and inheritance taxes). However, the truth is that under current law, few physicians will have to worry about estate taxes. They simply do not earn enough, save enough, or invest well enough to build their estate to an amount greater than the federal exemption amount. In 2017, the federal exemption before the estate tax applies is $5.49 million. As long as the total value of your estate is below that amount at your death, you will not owe any federal estate tax. The exemption amount is doubled if you are married. The exemption amount is also indexed to inflation under current law, so it should double every 20 years or so.
Unfortunately, some states have their own estate tax and often with a lower exemption amount than the federal law. These states include Connecticut, Delaware, Hawaii, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Nebraska, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Vermont, Washington, and the District of Columbia. Maine, Massachusetts, New Jersey, Oregon, and the District of Columbia have particularly low exemption amounts ($1 million or less).
If you are fortunate enough to have a federal estate tax problem or unfortunate enough to live in a state with a low exemption amount, it may be worthwhile to address this with some formal estate planning. The main strategy is to give away amounts above the estate tax exemption limit prior to death.
This can be done directly by giving away up to $14,000 per year ($28,000 if you are married) to anyone you like without using any of your estate tax exemption. This is a great way to decrease the size of your estate to an amount below the exemption limit. If you have three married children, each with three married children, that’s 24 people you, together with your spouse, can give $28,000 per year to ($672,000 total) without any estate (gift) tax implications.
You can also give money to charities through various structures that may also provide you substantial income tax deductions. If you are not comfortable giving assets to your heirs at this time, you can use an irrevocable trust. The money is then out of your estate but can only be used by heirs in accordance with the rules of the trust. If you expect to owe estate taxes at death, a consultation with a competent estate planning attorney in your state could be worth hundreds of thousands or even millions of dollars to you.
Be aware that some methods of simplifying your estate planning can have unforeseen consequences. For example, placing your children’s name on the title of your investment account or home can keep those assets from passing through probate. However, they may also cause the heir to owe a lot more in capital gains taxes than they otherwise would due to the loss of the step up in basis at death.
Estate planning is a process whereby you can ensure your wishes are met, probate is avoided, and estate taxes are minimized. Physicians need a will in place as soon as they have children or begin to acquire significant assets. Most will also benefit from scheduling a visit with an estate planning attorney by the time they reach mid-career.
What do you think? What have you done so far with an estate plan? At what point in her career should a doc go see an estate planning attorney for the first time? Comment below!
I’m turning 40 this year and visited a local estate planning attorney 2 years ago to establish a will and trust. I have no children and am not married and I spent about $2000 to get everything in order. In hindsight I probably did not need to have such elaborate documents drawn up. However, it has given me piece of mind knowing that upon my death people won’t have to muddle through probate and it’ll be very clear who gets what. Worth it IMHO.
Hi i am 40yrs old don’t own much in terms of asset a house, car, Life Ins policies, Investments(<100k). We have 3 kids . Not sure if we do need to go through a estate planning attorney or should we use legal zoom .
I’m not hearing anything very complicated. Why not try Legal Zoom and see if it meets your needs? You can always go hire an attorney afterward.
Can you speak to irrevocable trusts to help with asset protections? Pros/cons?
Sure. Irrevocable trusts, like anything else you give away to someone else, has excellent protection from your creditors. The cons? It’s not your money any more.
It’s a bit like leasing a car. You don’t need to own the car to drive it. And if you don’t own it, nobody can take it from you or put a lien on it. Assets held in an irrevocable trust are not your money, true, and some people can’t get their mind wrapped around that fact, but you still get to benefit from the assets (live in the house, drive the car, collect the rent check) and pre-direct the assets anyway you want as written in the customized trust agreement. You can also guide the trustee on investments as an advisor to the trust.
Actually there are more than 10 types of irrevocable trusts and they all have a bit of a different wrinkle, but combine the right one with an LLC, and you get a situation where you don’t own any of the assets but you can control them as the CEO of the company. A bit like the Rockerfellas, own nothing directly, but control everything in the back ground.
The chances that a doctor will get sued at least once during their career is 99%. I am not talking about malpractice, sure that’s a risk too, but I am talking about people suing you just because they make the assumption that if you are a doctor, you have money and let’s-see-what-we-can-squeeze-out-of-you mentality. It is really sad.
Settling for 50K is cheaper than going through a full trial which could easily cost you 100-200K just in legal fees; if you lose you could tack on the judgement and THEIR legal fees too. There is an army of attorneys that call themselves “contingent fee” out there that go around suing people over stupidity. The first thing they do is find out what assets are in your name that they can freeze or put a lien on, and if there is something easy to get, they will spend $175 to file a suit and try to negotiate with you on behalf of their client.
They typically get 30-35% of what ever they can blackmail you for. An Irrevocable trust makes their life hard. So hard, in fact, that they usually will tell their client they can’t do the case on contingency, but can still do it on an hourly fee. The client is rarely interested in giving the attorney 10-20K for a retainer to pursue you with no guarantee of winning (and they may come ask for more when the original retainer runs out). They just move onto another easy doctor target who did not want to protect their assets with an irrevocable trust because they did not like the idea of giving up ownership, or thought it was too inconvenient.
Okay, let’s correct a few of your misconceptions because they’re often used to sell crap to docs that they don’t need. Now I’m not saying you’re selling crap to docs, nor that there are no docs that need irrevocable trusts. I’m just saying some of your facts are wrong.
For example, you state that 99% of docs will get sued. An uncareful physician reader would assume from your statement that not only will he be sued, but that he needs to do something out of the ordinary about it. Both of those are not true. Let’s go through the facts.
# 1 Many doctors are never sued during their careers. It is a minority, but it’s much larger than 1%. In fact, it might be as high as 25% in the lower risk specialties. So while it might be 99% for a high risk specialty, it’s significantly lower for the majority of docs (who are in low risk specialties like IM, FP, Peds, Psych etc)
# 2 Now, an important fact you left out is that docs win 80% of the suits brought against them. There’s no payout by anyone.
# 3 Even in that other 20%, most of those are settled and even the vast majority of those that go to court and are lost are for less than policy limits.
# 4 In the rare cases where the physician has a judgement over policy limits, it is generally reduced to policy limits on appeal.
So the likelihood of a physician needing an irrevocable trust or some other active asset protection step outside of buying malpractice insurance is very, very low.
Now, let’s talk about legal fees. Guess who pays those? That’s right, the malpractice insurer. $50K settlement = nothing out of your pocket. $100-200K in legal fees = nothing out of your pocket. And an irrevocable trust doesn’t help with any of that (nor do you need any help with it.)
So, given that an attorney and his client are pretty much only going to get money from the insurance company and not the doctor, do they really care whether the doc has an irrevocable trust or not? Not really. It’s all about the policy limits. So let’s not oversell the benefits of an irrevocable trust.
Now, all that said, let’s talk about these “10 types of irrevocable trusts” and when each might be useful. I think people would be interested in learning about those.
I highlighted doctors because of the audience, but any individual with meaningful assets to lose has a much higher chance of being sued when they leave the assets in their name. Being a doctor (or business owner) just means that you are advertising the fact that you are wealthy- but so is driving a 100K car. People don’t sue people with no money or assets. I think we can all agree on that, right? There would be no incentive.
I think that most people would agree that a person with assets to lose being sued at least 1 time over a 20-30 year period of your career is not as far fetched as some might think. It is not a scare tactic, it really happens. According the National Center for State Courts http://www.ncsc.org/ (not my stat), there were 101M civil lawsuits; One lawsuit for every three citizens in the United States. Do you think that these cases are against people that could not afford to pay out something? These are not malpractice cases either.
#1 I specifically said I am NOT talking about malpractice. Specialty does not matter. If you preface your name with “dr”, you are a target for the slime-ball lawyers looking for low hanging fruit. For less then $20, they can find out the assets in your name. If there is no money in your name (or they are in an IT), they don’t waste their time. If there is money in your name, it costs less than $200 to file a lawsuit. Similar to venture capitalists, it is a numbers game. Some “investments” are going to lose, and some are going to pay off handsomely.
#2 If you consider spending $50-100K in legal fees to defend yourself as a win, then you would be correct. Defense attorneys are some of the most expensive out there. But above and beyond the “out-of-pocket cost” there is the mental and emotional cost that are a huge distraction from your job, family, and hobbies for 6 months to 2 years. It is obvious the writer has never actually gone through one himself.
#3 and #4 You are assuming you have insurance coverage and that you are also assuming that there is no negligence involved. Insurance policies don’t cover negligence – you would be on your own.
There is no question that trusts are not for everyone. I personally would be one to want to avoid being in the cross hairs of an attorney looking for trouble, but some of us would rather roll the dice. Most people don’t do estate planning so there are usually plenty of easy prey. That’s why when you use an irrevocable trust you take yourself off of the list of easy prey. No contingent fee attorney wants to deal with someone that has fortress around them when there are plenty of easy cases out there.
I disagree that only people with assets are sued. Lots of people with only insurance policies are sued (property, umbrella, malpractice) despite a negative net worth.
Not sure why you think easily purchased liability coverage doesn’t pay defense costs. Mine certainly does, both malpractice and personal. Not sure why you think the author has never been involved in lawsuits either, but that’s neither here nor there.
Also not sure why you think easily purchased liability coverage doesn’t cover negligence. That’s the whole point of buying it- to defend against a lawsuit where someone else is claiming you were negligent.
Regarding the “10 types of ILITS” you seem to have dodged the question.
Didn’t realize there was a deep interest in the different type of irrevocable trusts – I just thought we were trying to be coy. Yes ILIT is one type of irrevocable trust meant to hold life insurance (Irrevocable Life Insurance Trust).
1. ILIT
2. QPRT – Qualified Personal Residence Trust
3. Charitable Lead Annuity Trust
4. Charitable Lead Unitrust
5. Charitable Remainder Annuity Trust
6. Charitable Remainder Unitrust
7. Simple Irrevocable Trust
8. Grantor-type Irrevocable Trust
9. Complex-type Irrevocable Trust
10. Special Needs Trust
11. Constructive Trust
I’m familiar with most of those, but #s 8, 9, and 11 would be interesting to learn more about.
I have an Irrevocable Life Insurance Trust (ILIT) and it is an excellent tool to use if you have a taxable estate. The benefits are paid outside my estate and provide liquidity as the estate taxes are quite high. The premiums are paid via gifted monies and we set up Crummey letters (a good estate lawyer will help you set it up). The ILIT offers great asset protection as it is outside my estate. WCI is correct that it’s not my money (but I am dead anyways). My control over the ILIT is to stop paying the premiums (there are no surrender charges).
Asset protection trusts geared towards physicians are very expensive. They are usually set up in states like Nevada or Delaware. I went to a dinner sponsored by one of the local banks and they flew in a lawyer from the east coast. She talked about how physicians are high risk because of malpractice litigation. Nice dinner but no thanks once I learned of their fees. Practice good medicine and have good malpractice coverage. Sort of like have a good Umbrella insurance on top of your liability coverage and I think you will be fine.
What did you put in your ILIT that not paying the premiums somehow leads to an acceptable outcome? A term policy? Or do you just mean not paying any more premiums will just limit how much your heirs get from the whole life policy in the ILIT?
Also, I’m curious about the details of the asset protection trust you were pitched. It might make for a great guest post.
For others reading IJ’s comment- be sure you understand what he is saying regarding the ILIT. He’s saying he has an estate tax problem, which unless he is in one of 10 or so states, means he has an estate worth more than $5.5M ($11M married.) If you don’t also have an estate tax problem, this sort of estate planning likely makes little sense for you. More details here: https://www.whitecoatinvestor.com/irrevocable-life-insurance-trusts/
Any one with good family or partner stories about Unfortunate Series of Events type inheritances? Just weathered a scare when the adult kid dated someone we had a very minor fear might kill us all for the inheritance (there was at least enough secrecy we were afraid they’d get married without telling us, and this almost prompted us to do a ‘nothing to any spouse of our kid even at her death’ type trust which we did sort of plan if they announced an engagement), still have a minor child and have made sister and uncle the two trustees of her money in case of our joint death. Still worried they might not do right by her, aside from the current near 50-50 split is a bit unfair since the older kid has already gotten a lot more spent on her. And since I trust no one. Pretty soon will shift to not trusting her wisdom as an 18 yo but gambled that on older sister.
But we have all the IRAs (need to check the TSP) set to default to various kids after the spouse thus bypassing probate- will be a mess if still a minor when orphaned but <2 years to go. We are cheap and just get the Army to draft us a will for free- the young lawyers like our complicated stuff but we sure have to proofread- the prior draft (fine since mine had it covered) left out her dad's legal guardian choices.
Thanks for a great article. Can you elaborate about using an online will service vs. a will drafted by an estate attorney if complicated finances/estate taxes aren’t an issue? Do wills made without an attorney have a good track record for holding up in court when it comes to critical things like child guardianship and distributing assets?
I used LegalZoom to do my revocable trust and was happy with the on line platform, service, and timing (how quickly it was completed). It cost around $250 plus the cost of a notary. I wrote a post on my website about it, so if interested just google my name and living trust.
I know most docs are hesitant to use a online service for this stuff, but if your situation is not complicated (a few kids, a house or two, and maybe one business) then it would be easy to do. Plus they do have a lawyer assigned to you that you can talk to on phone or email if there are questions.
Estate planning is a process. I want to be explained, and be able to ask questions/discuss and get my wife involved as well. Talking this over with an attorney is time and money well spent. You’re also going to review the estate plan every decade or so.
If it is a simple “I Love You” will I think the online ones are fine. It should hold up fine. But if it’s any more complicated than that, I’d get an attorney to assist.
Glad the article brought up state estate taxes which seem the more pressing and common problem. A couple with a federal estate tax problem can put assets above 10M in an irrevocable trust and live very comfortably off 10M. A single person with a state estate tax problem might have a 1M house and 2M portfolio drawn down using the 4% rule. The latter person isn’t going to put their entire portfolio in an irrevocable trust and lose control of the assets. What’s the solution ? Partial annuitization, maybe. Since few states impose a gift tax, the person could use an accelerated GPRT or make a deathbed asset transfer.
We just formed our trust in the last few months. While we don’t currently have an estate tax problem, hopefully we do soon. If we both were to die soon, we would be very near to having an estate tax problem. That being said, the care of our young children (both day to day care and financial care) was our big reason to draw up the trust at this point. Having this written down with a clear setup of who is taking care of the kids and who is taking care of the money (different people) was/is important to us, and should avoid probate.
Your daughter is absolutely precious. Love, love, love that picture! Soooo adorable!
Thanks for all you do!
Interesting discussion. It does bring a question to mind. My wife and I setup a revocable trust 10’ish years ago when we lived in Illinois (low threshold estate tax). We moved 3 years ago to Arkansas. I’m wondering if the State of trust establishment versus State of residence makes a difference. Perhaps a question for an estate attorney in Arkansas.
^^important question. I second the request for info.
The internet suggests that yes, new docs are suggested: http://www.nolo.com/legal-encyclopedia/moving-new-state-take-look-your-estate-plan.html
Although, I’d be willing to bet if you died tomorrow that our old state wills/docs would weigh heavily on a judge in deciding what you wanted to happen to your assets, even if the language wasn’t up to snuff in that particular state. Either way, you’re alive today, might as well look at getting it addressed.
One more reason we have not bothered paying to get a will done (Army does it free, but not capable I believe of a very complicated estate plan). If we spend $2-5K getting things right for AL we’ll have to pay a similar amount when/if we move. Maybe if we’re a lot richer older and definitely settled. Thouhg more likely we’ll sort out gifting and reduce the size of our estate to Roth IRAs and POD accounts.
That would actually make a good guest post by an attorney wouldn’t it? My understand is they generally work fine, but if the laws differ between states you could run into an issue.
For me a guardianship plan for the kids is the most important part of the will. Recently, my wife and I were planning to go on a flight for a weekend getaway. We were leaving our 2 kids behind with the grandparents. A couple nights before we left our young daughter said we were going to “heaven” rather than Las Vegas. That really freaked us out and my wife almost canceled the trip. We really hadn’t discussed who would raise our kids if we were gone, which is ridiculous as we are both in healthcare and see unexpected life altering things happen to young people all the time. I got a will made up in one day on rocketlawyer.com for just a few dollars. It was notarized and given to my family before the trip. I really think it will hold up. Every account I have has a beneficiary on it and so I believe at least most of the $ will go to the right people. I love that I was able to immediately take care of the guardianship issue and now I can slowly and methodically work on a more complicated plan at my own pace with no urgency. There IS urgency to the guardianship of your kids and at least that part is simple.
I have an irrational fear of what would happen to our daughter if my wife and I died and she became an orphan at an early age. So either all of us go on trips together ( usually happens) or one of us stays behind if the other goes on a trip to attend a family function. Hopefully this will be resolved once she turns 18 and we have a trust for her, but for now we have never left her alone while I have taken a trip with my wife.
I agree that’s irrational. If a trust helps you actually go and have a good time, it’s money well spent I say!
Our minor children were the main reason we established a revocable trust. Thinking about the state establishing a conservatorship to dole out the money while they were minors, and then their potentially inheriting millions upon turning 18 were not desirable outcomes (“Girl with the Dragon Tattoo” scenarios kept popping up in my mind – eek!)
We spent around $2,500 working with an estate attorney. When I was single and childless, I did a boilerplate revocable trust, but the version our attorney drew up was more nuanced and specific for our situation.
if you have estate tax issues look into second to die life insurance
Small correction: The NJ estate tax exemption is $2 million in 2017. The NJ estate tax disappears completely on 1/1/2018. A fine trade-off for raising the gas tax IMHO.
My estate planning attorney recommended a Testamentary Trust (which comes into existence upon death) instead of a revocable inter vivos trust ( a “revocable living trust”) . Her decision was based on a) the cost is much less, and b) probate in Colorado is fairly easy.
Has anyone else decided on a Testamentary Trust?
Comments?
Thanks.
I agree that’s all many people need.
We have a testamentary trust with the option for a QTIP trust (protects assets from future spouses basically). Our lawyer felt we did not need a living trust at this point (way under estate tax limits) and really just 1 probate item (a condo). We will likely create a living trust as our assets grow.
Whatever you paid your daughter for that picture, it was not enough. Priceless.
One of my favorites for sure. It’s my phone screensaver.
What am I missing here? Hubby and I like to keep things simple; we only have a written will with one beneficiary, his only child (adult daughter), from a previous marriage. We don’t have children together. All of our financial assets (approx. $3.2 mil) are in mutual funds with each other as the primary beneficiary and daughter as the secondary. Home is not part of the $3.2 but the equity is only valued at approx. $300K. My understanding is that designated beneficiaries TRUMP everything else. Why have a trust when the only thing that will be probated is our house? What am I missing? Thanks.
Cars and stuff will also go through probate, but you’re right that you can keep a huge percentage of your assets out of probate without a trust.
Good problem to have. As the author mentioned, if you end up building up assets of that amount, it probably means that you might have some sort of businesses/investments that you can transition to your heirs. With a set of grandkids, there is a lot of room to divvy up the proceeds.
NJ and CT get the double whammy of high property costs, property taxes, and estate tax. Good thing I moved out.
Thanks for both comments. We don’t have expensive cars (one beater, one decent ’15 auto) nor do we have a business. All of our assets are in mutual funds with designated beneficiaries. Since we’re new retirees, we’ll spend the next 3-5 years traveling to determine where we want to purchase our retirement home. Once we’ve determined the state and set down roots, we’ll consider a trust. I imagine the choice of state is a large factor relating to trusts.
I’m interested to see the details of some trusts. When I was a resident we had a financial advisor talk to us yearly about the details of his personal trust with his three kids. For example, a certain amount of money before a certain age to provide for education expenses, car. A balloon payment at a certain age to provide for a house. Another balloon payment of the remainder of the trust at a certain age but not too young, And not too old where they have lost the opportunity to use the money.
Our trust created at death does this. With stipulations to withhold money if the our kid(s) end up being drug addicts. It’s on my to do list to go through the specifics of our wills on my blog…
So, if they drink coffee every day does that make them a drug addict? I’d be entertained to know who gets to determine that and who proves it.
I’m always amused at those desiring to control from the grave.
We first created a will when we had kids. We had no money at the time as I was just finishing residency. Now our youngest is finishing college and we need to update our will.
We have an estate tax issue due to our high net worth, both federal and state. We have begun the process of creating a new will and a new estate plan by interviewing one attorney. They quoted 4.5k to put together the necessary trust documents, etc. My spouse didn’t click with the first attorney, so I will set up another interview.
I prefer to keep things simple when possible, and we don’t have a particular desire to leave substantial assets to our children. We feel it is most important to help them get an education and then stand on their own feet in life. But it sounds like we are going to need a trust. And then the issue comes up with how to pay for the estate taxes on the business that I built. The business is illiquid and I have heard about the concept of life insurance to pay the estate tax on the value of the business.
Has anyone done this? Does this mean term insurance, whole life, or something else? At this point my term life policies are slowly expiring in a laddered fashion, but we have enough assets that life insurance is no longer important as far as living expenses. But now it seems this is shifting to the issue of the estate taxes on my business.
Sure. Lots of people do that. They usually do it with a whole life (OR GUL) insurance policy sometimes in combination with an ILIT. It not only provides extra funds to pay the taxes with just at the right time but liquidity that a farm or small business or bunch of rental properties can’t do. You could use mutual funds too, but it would be a little more uncertain as to how much would be there at just the right time.
Thanks WCI. I will definitely raise this question at my estate planning meeting.
Nj eliminated their state estate tax Correct me if wrong
2018 nj no state estate taxes thank god
It is interesting what happened in New Jersey. David Tepper was the richest man in the state. He had earned over 6 billion over a number of years. The income tax rate on his earnings was increased to 9% in New Jersey, not to mention the NJ estate taxes, so he changed his legal residence to Florida where there is no state income tax and no estate tax.
This change in legal domicile, by only one person, put the entire NJ state budget at risk.
https://www.nytimes.com/2016/05/01/business/one-top-taxpayer-moved-and-new-jersey-shuddered.html?_r=0
It seems that the states are becoming more aware of how income and estate taxes have an effect on the decisions of some of their wealthy residents. From a purely tax standpoint, I should move now, or perhaps when I further retire beyond my current partial retirement. Unfortunately our home state creates an estate tax problem for us. We have a tax cliff, so that once an estate surpasses a certain level, they tax your entire estate. This leads to marginal tax rates of way over 100% when you go over (fall off?) the estate tax exemption cliff.
From a purely financial perspective, continuing to work is going to cost me a fortune. I need to stop working so we can get out of Dodge….
I don’t care to give my kiddo too much money. I like to give to charity. So I have most of my accounts set up TOD to a DAF (donor advised fund) (at Fidelity), which in turn is set to go to my charities of choice.
Interesting topic. Maryland is also phasing out the state estate tax, currently in 2017: $3 million, 2018: $4 million, 2019: amount equal to federal estate tax exemption amount. The wealthy are heard apparently.
Btw, what does happen if both parents die and beneficiaries of taxable accounts are minors? I hear everyone talk about this as a never-event, but no one actually goes into details. I agree that a lawyer interview would be a great podcast.
The assets are held in trust until they’re 18. If you’d like to write the terms of that trust, better do it before you die.
You should be especially careful if naming a trust as beneficiary of an IRA. The distribution rules are complicated.
Another purpose is the management of financial affairs should you become incapacitated and cannot make decisions on your own i.e. Power of attorney, healthcare directives. This falls into the estate planning category as well.